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Undersecretary Outlines Cost-saving Strategy

WASHINGTON, Nov. 16, 2010  Affordability, incentives and productivity growth are the ingredients to get the most out of the next Defense Department budget, a top Pentagon official said today.

The department will have to become more efficient to support troops while the budget flattens, Ashton B. Carter, undersecretary for acquisition, technology, and logistics, told a Center for American Progress audience here.

In the existing $700 billion defense budget, Carter said, $400 billion goes to contracted goods and services. Defense Secretary Robert M. Gates wants better productivity growth – or more for their money -- on that $400 billion, he said.

Carter said he and Gates recently co-authored a 20-page, 23-point strategy for finding better buying power in defense spending. The strategy is a reflection of the new, tighter budget era following a period of “double-digit, year-after-year growth in the defense budget that’s been necessary by a war that’s still ongoing,” he said.

“We need to manage to a different reality,” Carter said.

The department must “get to the point where we have things we do want and do need,” rather than acquiring items that are not necessary to support the troops, he said.

Affordability is key for new programs and those underway like the SSNBX nuclear missile submarine that will “age out” around 2020, Carter said. Originally, the design for each new submarine was estimated at $7 billion in 2020 dollars, he said, but at that rate, a redesign would cost around $200 billion over time, and “we wouldn’t be able to build any ships.”

“We looked at factors driving the costs of the submarine, and without compromising critical military capabilities, we cut back on the design in the interest of affordability,” Carter said. The department is on track to cut the estimated cost for the submarine designs by 35 percent.

Sticking to what is affordable, Carter said, “comes from discipline, upfront, of saying I’m not going to pay that kind of money.’”

Likewise, “We’ll do the same for the new presidential helicopter, for replacing the cancelled bomber, and the next generation of the Army’s ground combat vehicle,” the undersecretary said.

Carter used the joint strike fighter as an example of a project in progress. “This is the centerpiece of tactical air modernization, the backbone of tactical air fleet,” he said. “Estimators told us it would cost $50 million when the program began in 2002, but now it’s $92 million. I said ‘No, that’s not happening. We’ve got to get back to the original cost.’”

Another element to save money is by giving incentives to contractors to spur productivity growth, Carter said.

If a project’s cost comes in under budget, he said, the contractor and the department would share in the savings, and if there’s an over-run, both share “the pain of it,” Carter said. That way, he said, “Both have incentives to control costs and hit the cost target.”